The City Council last night voted into effect a 20 percent increase in the average residential tax rate as part of a package of measures designed to correct Cambridge's unexpected budget shortfall.

After a four-hour public hearing, the council approved nine measures--including one which would appropriate $4.4 million from the city's free cash reserve--in an effort to compensate for the unexpected $2.8 million state funding shortfall.

The city has been operating without revenue since July 1, when the end of fiscal year 1991 found the council without a finalized budget. According to City Manager Robert W. Healy, the new measures should be in place sometime next week, pending approval by the state.

Prior to voting on the measures, most of which passed unanimously, the city's governing body engaged in a long and strained debate over the merits of the tax rate increase, punctuated by veiled jabs at one another. While the five left-leaning council members spoke in favor of the increase, the four more conservative councillors--notably Councillor William H. Walsh--favored using more funds from the city's steadily-shrinking free cash fund to offset the budget deficit.

"I really believe the taxpayer of this city has been gypped tonight...I totally disagree with this tax increase," Walsh told the council.

But Councillor Jonathan S. Myers said that he viewed the recommendations as "taking the right approach in terms of being prudent and not gambling."

In the conclusion to the report containing the recommendations, Healy cautioned that "nothing would speed the fiscal downfall of Cambridge faster than the diminution of our cash reserves." During the meeting, he also told the council that the free cash appropriation, much of which derived from Cambridge City Hospital surplus, "will be on the back of the hospital, no matter how you cut it."

In practice, the tax rate increase would range from taxing one-family homes an extra $83 annually, and taxing homes with nine or more families an extra $2729 annually. The other measures the council passed were mainly formalities designed to trim a little fat and put the city in compliance with state codes.

Like the protracted budget negotiations of last spring, last night's debate demonstrated that not even traditionally solvent and upscale Cambridge can escape from the economic hard times flattening cities across the country.

"The reality," City Manager Healy admitted last night, "is that we are going through a very difficult year." Cambridge property taxes class of  average  average  percent dwelling  fv91 tax  fv92 tax  change 1-family  $3000  $3083  2.77% 2-family  $2486  $2589  4.15% 3-family  $2557  $2889  13.37% condo  $1237  $1312  6.04% 4-8 family  $2308  $2558  10.85% 9+family  $11,963  $14,692  22.82%